Yongda Block Trade Signals Rising Competition Among Bankers

A General Motors Co. Buick Regal stands on display at the GM Buick Yongda dealership in Shanghai, China, on Thursday, Oct. 13, 2011.

Bloomberg News

There are signs that Hong Kong’s share sale market is picking up from its drought days of recent months, but for bankers, there’s still little joy. An ongoing block trade worth US$50 million in China Yongda Automobiles Services Holdings Ltd by an existing shareholder has three bookrunners on the deal.

That’s the second time a deal this small has had so many bankers, at least in the past three years. In recent years, every Hong Kong block trade that raised less than US$100 million had, at most two bookrunners, according to Dealogic. Another exception was a $66 million share sale by railway systems developer China ITS (Holdings) in January, 2011 which had three bookrunners — Bank of America Merrill Lynch , China Construction Bank Corp and Macquarie Group.

In Wednesday’s placement of shares in the Chinese car maker, Sun Moon China Investment Co. is selling shares in a price range of HK$7.90-HK$8.20. It has appointed Bank of American Merrill Lynch, UBS AG and HSBC Holdings Plc to handle the sale, according to a term sheet seen by the Wall Street Journal. It didn’t say how many shares would be sold, by Sun Moon China is a vehicle owned by Yongda Chairman Cheung Tak On’s brother-in-law. The shares are being sold at a 8%-12% discount to their Wednesday close of HK$8.94.

Block trades can be lucrative because they are done in a short time frame, even though fees are lower than that for IPOS. Bankers tend to charge around 0.75%-1.25% of the deal for a block trade, against up to 3-4% for IPOs in Hong Kong. But a block trade also carries more risk for bankers, who have to underwrite the share sale and can’t scrap it, as they do with IPOs, if demand is insufficient.